Paying off Student Loans Early

Education costs have increased to unprecedented levels in the last couple of decades and so students loans come in handy for people with financial constraints. Majority of us have to take student loans during our college years to fund our education. Paying off student loans is a responsibility of students after they've graduated from their colleges. Many people who have been working for couple of years after having finished their graduation keep their student debt, even though they may not be having any other debt. Instead of paying off student loans early, many people keep it as a part of their larger debt payment plan. If you have been like the same people who postpone their plans of repaying student loans early, you need to think carefully about the entire scenario. If at all, you're unable to do maths regarding the money you may have to pay in the process of not repaying your student loans early, seek counseling from a financial adviser.

Why You Should Pay Off Your Student Loan Early?

People have all sorts of misconception about repayment of student loans. Some try to keep them for tax breaks while some believe it will help them in their debt payments plans. While arguments for both sides can seem justifiable in individual circumstances, here are very fundamental and practical reasons for paying off student loans early.

Improvement in Debt to Income Ratio
Some simple maths will help you to understand that lowering your debt to income ratio can easily help you to save some money for your future financial commitments. If you pay off your loan early, you'll have more money available to you as you won't be having any commitment to pay some extra money for your student loans. The same amount that is being used to pay off student loans can be invested in better options.

Isn't the Student Loan an Additional Payment?
Every month, you're bound to withdraw some money and pay as your student loan. This is in itself an extra payment deducted from your earnings. Moreover, if you're planning to keep your student debts or loans for tax break, then give it a second thought by studying about federal income tax laws. Mostly, only $2500 of the interest can be deducted every year. Added to this, if you start earning a decent amount (say $70,000) per year and you're unmarried, your tax break amount may be phased out. Eventually, you'll either pay to interests or to taxes, so ideally, it is better to pay off student loans as quickly as possible.

Think of Better Investment Plans
Mutual funds and similar investment options are ideal for people who want their money to be managed by professionals in investment market. Such investment opportunities are also extremely beneficial as they have high interest rates. Even if you're deducting your interest amount incurring every month from your student loan payment, you will realize that you're still paying significant money. Why not repay your student loans early and use this amount to invest in mutual funds? That will be the best utilization of the earning potential of that amount.

Repaying Loans is Inevitable
There is a saying that no one can escape death or loans and it is quite true. Escaping from student loans is virtually impossible as even in the worst case scenario of filing bankruptcy, you're still required to pay off your student loans. Moreover, any financial crises you may encounter in the distant future may be less horrific if you have lesser financial commitments. Hence, paying off student loans early seems to be the most ideal solution for avoiding any headaches and worries in future.

It doesn't make any sense to take loans for a college of four years and then repay it for next 20 years. It is smart work to repay your loans faster by following some fixed strategy. To really understand the difficulty of repaying student loans in later years of life, when you'll have more financial commitments, meet some of your senior friends or elders who're facing the same situation. Anybody who has faced torture of not repaying loans on time, will advise you to be smart and pay them off at the earliest. Fixing an appointment with a financial adviser and discussing student loan consolidation programs can be of immense help to students in achieving long term financial happiness. Don't wait for some better days, better life and work upon paying off student loans early. That will solve half of your financial worries.

DISCLAIMER: This article is just meant for informative purposes and it only encourages the readers to get rid of their student loans early. It is not a substitute for professional advice.

By Kundan Pandey
Source : Paying off Student Loans Early